In 2018, the Supreme Court changed the rule that decided which states could make an online seller collect sales tax. Here's what changed, why it matters, and how the new rule actually works.
Updated 10 July 2026. Sources: Supreme Court opinion, South Dakota v. Wayfair, Sales Tax Institute. Informational only, not tax advice.
Before 2018, a state could only require your business to collect its sales tax if you had a physical presence there — an office, employees, or inventory. If you were just shipping orders in from another state, you were generally off the hook, no matter how many customers you had there.
The Supreme Court's decision in South Dakota v. Wayfair, Inc. changed that. States can now also require collection based purely on sales volume — no office or warehouse required. This sales-volume-based obligation is called economic nexus, and it's the reason a growing online store can suddenly owe sales tax in a dozen states it has never set foot in.
South Dakota passed a law requiring any out-of-state seller with more than $100,000 in sales, or 200 or more separate transactions, into the state to collect and remit South Dakota sales tax — even with zero physical presence there. Wayfair, Overstock, and Newegg challenged the law, arguing it violated the physical-presence standard the Court had set in Quill Corp. v. North Dakota (1992).
On June 21, 2018, the Court ruled 5–4 in South Dakota's favor. It held that the physical-presence rule was "unsound and incorrect," noting that e-commerce had grown from a rounding error in 1992 to hundreds of billions of dollars in annual sales by 2017. The new standard: a tax is constitutional if it applies to a business with "substantial nexus" with the state, and that nexus can be established through economic and virtual contacts alone — not just a physical footprint.
South Dakota's own $100,000-or-200-transaction threshold became the template most other states copied when they wrote their own economic nexus laws in the following years.
These two aren't rivals — they stack. A business can have either one on its own, or both at once, in the same state.
Because both still exist, "I don't have an office there" is no longer enough to rule out an obligation. You have to check both.
Every state sets its own number, so there is no single nationwide rule to memorize. A few patterns worth knowing:
The full current threshold, measurement period, and source for every state is in our economic nexus by state reference.
Crossing a state's economic nexus threshold generally means you need to register for a sales tax permit in that state before you start collecting, then collect tax on future sales into that state and file returns on the state's schedule. It does not retroactively tax your past sales in most cases, but states differ on the details — always confirm the specifics with the state's Department of Revenue or a tax professional. See our guide on how to register for a sales tax permit.
Nexus is the legal connection between a business and a state that's strong enough for the state to require the business to register, collect, and remit sales tax. Historically that connection had to be physical (an office, employee, or inventory in the state). Since 2018, most states also recognize economic nexus, where enough sales volume into the state creates the same obligation.
On June 21, 2018, the U.S. Supreme Court ruled 5-4 that states can require out-of-state sellers to collect sales tax even without a physical presence in the state, overturning the physical-presence rule from Quill Corp. v. North Dakota (1992). The Court found South Dakota's law — requiring collection above $100,000 in sales or 200 transactions — created sufficient "substantial nexus" with the state.
No. Each state sets its own threshold and measurement period. $100,000 in sales is the most common figure, but California, Texas, and New York use $500,000, and Alabama and Mississippi use $250,000. There is no single federal rule — you have to check each state.
Less each year. Several states originally paired a dollar threshold with a 200-transaction threshold, but nine states repealed the transaction-count leg between 2023 and 2026 (South Dakota, Louisiana, Indiana, North Carolina, Wyoming, Alaska, Utah, and Illinois, with Kentucky's repeal effective August 1, 2026), leaving only a dollar test. Most states that still list both use an OR test — crossing either one triggers nexus — except New York and Connecticut, which require both.
No, it's additional. Physical presence — an office, remote employee, contractor, or inventory such as Amazon FBA stock — still creates nexus on its own, regardless of sales volume. Economic nexus is a separate, sales-volume-based trigger layered on top.